Business performance and ownership
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After bouncing back from sharp declines in the 2008–2009 recession, operating profits for Canadian corporations stalled throughout most of 2010. However, in the fourth quarter of 2010, corporate operating profits were $65.5 billion, 9.0% higher than the fourth quarter of 2009 and 10.3% higher than the fourth quarter of 2008, when the recession began. Operating revenues rose to $805.4 billion, up from $768.3 billion in the same period in 2009.
One measure of financial health is the profit margin, which indicates management's ability to generate earnings from a firm's principal business activities. The profit margin for corporations in all industries rose to 8.1% in the fourth quarter of 2010, up from 7.8% in the same period of 2009 and 7.6% in the fourth quarter of 2008.
Another important indicator is the debt-to-equity ratio, which indicates the extent to which a firm relies on borrowed funds to finance its operations. A high ratio generally means a company has been aggressive in using debt rather than equity to finance operations. In the fourth quarter of 2010, the debt-to-equity ratio for all industries decreased to 0.838 from 0.881 in the fourth quarter of 2009 and from 0.943 in the fourth quarter of 2008.
In the fourth quarter of 2010, year-over-year profits in the non-financial industries increased by 16.6% to $47.9 billion, whereas profits in the financial industries decreased by 7.0% to $15.9 billion.
Of the 17 non-financial industries, 13 saw increased profits, with mining and quarrying, manufacturing, and arts, entertainment and recreation leading the way. Year-to-year profits in the mining and quarrying industry climbed 112.1% to $2.3 billion. Profits for manufacturers increased 45.7% to $11.1 billion. In the arts, entertainment and recreation industries, profits increased 61.6% to $349 million.
In the financial sector, 2 out of 5 industries increased their profit margins. Growth was led by securities, commodity contracts, and other financial investments and related activities. which increased 16.2% from the fourh quarter of 2009 to the fourth quarter of 2010. Non-depository credit intermediaries, posted 5.0% gains to $2.2 billion. Depository credit intermediation industries, mainly chartered banks, declined 9.0%, showing a fourth-quarter profit of $5.8 billion. Over the same period, profits for activities related to credit intermediation fell 23.0%; profits for insurance carriers and related activities fell 26.1%.
Business investment during a recession
During severe recessions, businesses invest less in plants and equipment, and the 2008–2009 recession was no exception. Canadian business investment declined by about 20% in volume in the recession. Investment picked up again in 2010, but by the third quarter, it amounted to only half of the pre-recession level. Business investment dropped off more sharply during the recent recession than in the previous two recessions of 1981 and 1990. Corporate capital spending also fell and rose in tandem with income during the 2008–2009 recession and the recovery of 2010.
Business assets and ownership
In 2008, businesses operating in Canada held $7.3 trillion in assets, a 0.1% increase from the year before. Enterprises operating in the non-financial sector accounted for 48.1% of total assets, with the remaining assets (51.9%) belonging to the finance and insurance industries.
In 2008, foreign businesses controlled 20.6% of the assets of enterprises operating in Canada. U.S.-controlled firms accounted for the majority (56.7%) of foreign assets in the non-financial industries and just under half (47.9%) of foreign assets in the finance and insurance industries. The share of assets under foreign control fell 4.6%, compared with the 1.3% increase posted by Canadian-controlled firms in 2008. This slower growth for foreign-controlled enterprises pulled their share of assets down from 21.6% in 2007 to 20.3% in 2008. Foreign-controlled revenues rose 6.7% compared with an increase of 4.2% for those under domestic control. The share of revenues under foreign control rose from 29.6% in 2007 to 30.1% in 2008.
Corporations paid a total of $51.6 billion in income taxes in 2009, a drop from $52.7 billion the year before. Income taxes represented 28.6% of their taxable income. The federal government collected income taxes amounting to 17.8% of corporations' taxable income, while the provincial governments collected 10.8%. Income taxes payable by the non-financial industries were down 9.2% to $38.9 billion, while income taxes payable by the finance and insurance industries increased 28.3% to $12.7 billion.
In 2009, corporations claimed a total of $39.4 billion in tax credits to offset their total taxable income of $180.3 billion.
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